Blockchain in the Supply Chain: Can it Really Improve Sustainability?
Blockchain in supply chains has the potential to drastically improve their sustainability. But how does it work? We explore the potential of blockchain.
Ensuring supply chains are truly sustainable is one of the greatest challenges facing procurement. Supplier networks are constantly evolving and becoming more complex, as this happens it’s becoming next to impossible for producers to guarantee products are 100% sustainable.
With sustainability set to become strategically imperative as we move further into the 2020s, problems facing our increasingly complex supply chains require equally complex solutions.
Could blockchain be the defining one?
In this piece, we’ll be exploring the issues facing the modern supply chain, particularly from a sustainability perspective, and looking at how technological advances like blockchain could help to solve them.
What are the problems faced by modern supply chains?
Now, more than ever before, customers demand faster and more efficient services at a lower cost. This has led to the need for companies to become increasingly creative in how they serve the modern customer. As a direct result of this need to balance cost and speed against quality and convenience, the traditional supply chain has become much longer and more complex.
This complexity then breeds a multitude of problems that can often be tricky to pin down and identify. One key issue is a severe lack of transparency within the chain. This often means that one or more suppliers or vendors could be employing practices that render the entire supply chain and final product unsustainable.
Years of work has gone into building and shaping supply chains that maximise profit while minimising cost. So much so, that many companies have long turned a blind eye to anything beyond that, least of all environmental impact.
Properly assessing how vendors operate is the key to solving transparency issues. While there can be all the good intent in the world at the top of the chain, enforcing those standards the whole way through is a challenge. Currently, doing this effectively is what sets truly sustainable companies apart from those merely paying sustainability lip service.
What is blockchain?
Blockchain is essentially a data structure that can be used to hold transactional records and information while ensuring transparency, accountability and security. It can be described as a series of records or ‘blocks’ that are not controlled by one single authority. Crucially, once data is stored on a blockchain it is incredibly difficult to remove or alter.
Every blockchain transaction is secured using a digital signature, proving authenticity. The use of encryption and these digital signatures are what makes the data stored on the blockchain so secure.
A blockchain is accessible by everyone within its network, leading to high levels of transparency amongst participants. All members are also required to reach an agreement that defines the usage of each chain. The origins of this technology stem from Bitcoin and the cryptocurrency market, where trust and transparency are paramount to its success.
All data gathered at each stage of the chain is accessible via a shared history and can be viewed by everyone within the network. This is how fraudulent transactions and duplication of cryptocurrency is prevented without the need for a third party or governing body.
How can blockchain improve supply chains?
The very nature of blockchain lends itself to the world of procurement. It allows elements and materials to be traced right from source to final product, something that has not been truly achievable before the development of these technologies.
It registers and tracks a chronological string of informational blocks that contain highly detailed data. So detailed that much of the information stored on a blockchain is not recorded via traditional financial ledger systems. These blocks are then encrypted and distributed to all network participants who record and keep their own copies of the data.
It’s thanks to these qualities that blockchain technology can provide a comprehensive, trustworthy and secure record of an entire supply chain, no matter how complicated it gets.
Since each stakeholder has access to their own copy of the data, transparency, traceability and coordination issues are greatly reduced if not removed altogether. Each party has the capability to review transaction statuses, identify errors and hold others accountable for their actions. Rewriting or overwriting the blockchain data is impossible as it would involve having to change all subsequent blocks on all shared copies of the blockchain.
Is blockchain sustainable?
Unfortunately, blockchain, like other data-intensive technologies (AI and machine learning for example) have a significant problem. While they can undoubtedly be used to improve the sustainability of other industries, they themselves are far from sustainable.
The European Environment Agency’s research into the issue raised serious concerns about blockchain’s wider rollout across industry. The vast amount of data that needs to be processed for blockchain to work requires computers and advanced algorithms to work around the clock. This kind of processing power consumes huge amounts of energy, thus raising questions about blockchain’s environmental credentials.
What you told us about technology and risk…
Despite the environmental concerns raised above, the adoption of AI is fast increasing in the procurement and global supply chain. In our recent What Next? survey, key findings revealed that more organisations feel that the use of AI and Machine Learning (50.17%), RPA (36.88%), predictive analytics (57.48%) and IOT (33.55%) will help mitigate future pandemics and supply disruptions.
The role of AI is proving central to the great technology reset, spurred on by the events of the last 18 months. With a huge leap of interest around machine learning and artificial intelligence, this space is one to be watched. More discussion around the impact of AI on the global supply chain will be discussed in the What Next? The Great Procurement Reset webcast on September 15.
There is no doubt that blockchain is set to change the way global supply chains operate and interact with one another. But until the technology itself is fundamentally sustainable, environmental questions will loom.
We know ethical procurement has big pay-offs.
That’s why this year’s Big Ideas Summit Chicago will focus on sustainability. We’re ready to empower businesses to lead the charge to establish greener supply chains and procurement processes.
Our Big Ideas will be delivered by internationally renowned speakers to our fully digital event. So what are you waiting for? Register today to secure your place!
